Why does financial education matter?

When it comes to managing and growing your money, Metrobank sees a journey that you should understand as you move towards achieving a financial goal. To get there, you have to know these fundamental principles:

  • Managing your debt
  • Budgeting and tracking your expenses
  • Creating an emergency funds
  • Improving your quality of life
  • Growing your money

 

Learning about money when you’re still young can positively influence your financial future. Here’s why it’s important to teach children about money management.

Without the proper knowledge and guidance about personal finance, you will continue to misunderstand the role of money and subsequently make bad financial decisions that will prevent you from enjoying life and achieving your financial goals.

The bank’s view on financial education and money.

One way to understand money is through financial education. Simply put, financial education will help arm you with important financial skills necessary to make informed decisions.

Our financial education covers fundamental principles and topics on money-saving and debt-management, to more complex concepts such investments.

It’s in our view that learning these money basics will help:

  • Improve your awareness of your financial situation
  • Make you financial resilient and secure
  • Build your money confidence and habits that add value to your lifestyle
  • Turn your money into an asset to help protect you and your family’s future.
  • Develop and sustain your financial wisdom.

 

Financial education as a journey

One way of looking at financial education is a journey towards a specific financial goal.

This journey has five important goals. These are:

  • Understanding how you can manage your debt.
  • Learning how to budget and track your expenses.
  • Knowing how and when you can start an emergency fund.
  • Learning how and when you can invest.

 

Managing Debt

When you start your journey, the first thing you need to understand is your debt. Despite what you think, debt isn’t all bad.

our income usually goes to your regular expenses. These include food items, housing and utilities, home essentials, transportation, and leisure and entertainment.

Budgeting and tracking expenses require discipline when it comes to managing your money.

Start by setting a monthly budget, listing down your expenses, and using free mobile apps to track your expenses. Or you can make use of a simple spreadsheet to list every item you spend on.

Then you can adjust your budget according to how much you spend, to help you make changes in your lifestyle. The 50-30-20 rule is often cited as a solid model when starting to budget. This means you can set aside 50% of your budget for your needs, another 30% for your wants, and 20% as savings. You may change this depending on your lifestyle though it is paramount that savings should be an essential part of your budget routine.

Create an emergency fund.

Once you have done your monthly budget, you can proceed to building your emergency fund.

An emergency fund is the money you have saved for the rainy days. This money is meant to be spent on medical emergencies that require hospitalization, home or car repairs, and unforeseen education expenses (especially if you have children). An emergency fund can also ensure that you have money to spend if you fall on hard times, such as losing a job, closing a small business, or even spending due to sickness or death. An ideal amount for an emergency fund is between three to six months worth of expenses, which should help you sustain your lifestyle.

To start building an emergency fund, you must:

  • Set aside 3 to 6 months’ worth of your monthly income, or whatever you’re comfortable.
  • Put in a bank account that is separate from an account that is used for other expenses. Be sure that it is kept safe.
  • Follow through with your budget and make the emergency fund happen.

 

Improve your quality of life.

As you continue building on your money basics, you also need to move towards improving your quality of life.

This means being able to take on loans to buy a house or a car, making home improvements, or even getting a life or health insurance.

Invest and grow your money.

Finally, you are ready to make investments!

An investment is anything that takes time and effort to grow in value. It’s like a plant that you put in the ground, watered and fertilized, until it grows and produces fruits that can either be eaten or sold to others. But with investments come risk (i.e. market movements), which like plants are also exposed to external elements that may affect its growth.

There are several financial products that can be considered as investments: time deposit, stocks, bonds, and mutual funds. Even education is a form of investment because it makes you even more suitable for hiring and being the boss of your own business.

Remember, anything that improves your financial goals and adds value to your needs is a kind of investment.